Will coal-fired power output see a solid recovery?

Thai Binh 2 coal-fired power plant

Although there is a solid improvement compared to the last two quarters, coal-fired power output slightly dropped 5% yoy in 1Q22 due to a coal shortage. According to the EVN report, based on updated data on March 30,2022, the coal supply for EVN’s thermal power plants is facing many difficulties with a huge shortage compared to the original coal supply signed contract.

In 1Q22, total coal supplied volume to EVN’s thermal power plants was 4.49m tonnes out of a total of 5.85m tonnes according to the signed contract (reaching only 76% of total plan). Hence, due to a lack of coal supply and low inventory, several coal-fired power plants had to deflate. Specifically, Nghi Son 1, Vung Ang 1, Vinh Tan 2, and Duyen Hai 1 only had enough coal to operate 1 unit at 60–70% capacity; Hai Phong thermal power plant only has enough coal to operate 1 out of 4 power units.

However, the coal-fired power plant business still recorded a positive outcome thanks to vibrant mobilization in the CGM as ASP surged 26% yoy from VND1,200/kWh to VND1,521/kWh.

One of the major reasons for the coal import drop is related to the recent surge in coal prices because of the geopolitical conflict between Ukraine and Russia, which resulted in the supply chain corruption of coal. Hence, although Vietnam National Coal and Mineral Industries Group (Vinacomin) has opened four international bidding packages to buy imported coal for 2Q22, the coal price spike, plus supply scarcity under Ukraine-Russia tension, led to no winning bidder.

At the moment, international coal prices have surged up by 2–3 times and are far higher than domestic coal prices of US$58/tonne. However, with drastic directions from the government, by all means do not let there be a shortage of coal, especially in the upcoming hot season. Vinacomin and its subsidiaries are striving to increase domestic exploitation, making up for the shortfall in imported coal to ensure sufficient coal resources for power plants in the near future.

Mr. Nguyen Ha Duc Tung, VNDirect's analyst, believes the thermal coal shortage to be only a short-term issue, because (1) the number of Covid-19 cases of Vinacomin staff and workers has decreased significantly compared to the first quarter, when there was a time when the number of cases reached 40,000 people, greatly affecting the speed and ability of exploitation; (2) Vinacomin is committed to ensuring coal compensation for power production in the coming months. In particular, at the end of 4M22, there were positive results in TKV business, in which, coal supply for electricity was 11.7 million tons, reaching 33% of the year plan, up 2% and up 300 thousand tonnes over the same period.

"We believe in the recovery of coal-fired power thanks to (1) strong expected power consumption growth in 2022; (2) coal-fired power continues to be the major background source for system stability, especially when wind power has shown its instability after 6 months of operation," said Mr. Nguyen Ha Duc Tung.